Financial Services in Focus – Issue 61

Government consults on proposed foreign financial services provider regulation

On 20 December, the Treasury published exposure draft legislation seeking stakeholder views on the first tranche of exposure draft legislation to provide regulatory relief for foreign financial service providers (FFSPs). This follows consultation  undertaken earlier this year in relation to relief options (for more information, see our earlier Issue 56).

According to the Treasury, the exposure draft legislation seeks to introduce:

1. the comparable regulator exemption, which exempts FFSPs authorised to provide financial services in a comparable regime from the requirement to be licensed when dealing with wholesale clients;
2. the professional investor exemption, which exempts FFSPs that provide financial services from outside Australia to professional investors from the requirement to be licensed in Australia; and
3. an exemption from the fit and proper person assessment to fast track the licensing process for FFSPs authorised to provide financial services in a comparable regulatory regime.

Consultation closes on 12 January 2022.

Treasury releases exposure draft legislation on employee share scheme reforms

On 20 December, Treasury released exposure draft legislation that seeks to remove regulatory barriers in offering an employee share scheme.

Treasury states the new draft legislation has the following changes compared with previous consultations:

1. making the availability of regulatory relief contingent on offers including certain terms – including terms limiting the size of purchases and provision of disclosure documents;
2. changing the limit on the size of purchases to a monetary cap where an employee can outlay $30,000 per year (which can be accrued for unexercised options over a five‑year period, up to a maximum of $150,000) plus 70% of dividends and 70% of cash bonuses, for an unlisted company employee share scheme offer;
3. removing the limit on the size of purchases where the terms are such that an employee cannot pay for their interests unless there is a liquidity event, and the sale or listing price is higher than what the employee will pay;
4. limiting loans to employees who are not existing shareholders;
5. extending regulatory relief in respect of issues to certain discretionary trusts, consistent with existing relief in respect of offers to senior managers;
6. extending regulatory relief in respect of free offers to independent contractors; and
7. including ASIC exemption and modification powers, and regulation-making powers.

The consultation paper additionally seeks feedback on the necessity of an issue cap and any alternative regulatory mechanisms that could be used to minimise the risk of fundraising through employee share schemes.

Consultation closes on 4 February 2021.

Government announces reforms to require licensing of proxy advisers

On 17 December, the Treasurer, Josh Frydenberg, and the Minister for Superannuation, Financial Services and the Digital Economy, Jane Hume, jointly announced that the Government intends to introduce legislation to extend the Australian Financial Services Licence (AFSL) regime to cover a greater range of proxy adviser activities, and by requiring proxy advisers to be independent of their institutional clients.

The licensing extension and the requirement to provide copies of proxy advice to companies will commence from 7 February 2022, with the new independence and superannuation voting disclosure requirements commencing 1 July 2022.

ASIC signs MoU with Croatian financial services regulatory authority

On 10 December, ASIC announced that it has signed with the Croatian Financial Services Supervisory Agency, a memorandum of understanding (MoU) regarding mutual assistance in the supervision and oversight of managers of alternative investment funds that operate on a cross-border basis, and the entities they delegate functions to or that hold securities on their behalf.

Government announces significant payment system reforms

On 8 December, the Government published its response to the Review of the Australian Payments System, the Senate Select Committee on Australia as a Technology and Financial Centre Final Report, and the Parliamentary Joint Committee Corporations and Financial Services Report on Mobile Payment and Digital Wallet Financial Services.

In a joint media release, the Treasurer, Josh Frydenberg, and the Minister for Superannuation, Financial Services and the Digital Economy, Jane Hume, announced that the comprehensive reforms will, among others:

1. modernise the rules governing how Australians transact every day, including through new forms of payment like Digital Wallets and Buy Now Pay Later;
2. aim to give Australian’s confidence that businesses they engage with to buy, sell or hold digital assets like crypto are subject to appropriate oversight and licencing arrangements; and
3. investigate the feasibility of a Central Bank Digital Currency and seek to address the complex issue of de-banking.

The Treasurer also explained that the reforms will progress in two phases, with the most urgent and immediately implementable reforms to be consulted on in the first half of 2022 and the remainder by the end of 2022.

Federal Court hands down case on misleading credit fund marketing

On 26 November, the Australian Securities and Investments Commission v La Trobe Financial Asset Management Ltd [2021] FCA 1417 was handed down. The case arose out of ASIC’s allegations of misleading or deceptive conduct by the responsible entity in relation to a credit fund. Ultimately, the parties submitted agreed facts of contraventions by the responsible entity. The relevant conduct comprised:

1. the use of the names ’48 Hour Account’ and ’90 Day Account’ online and in print media to refer to investment options in circumstances where, under the constitution, the responsible entity had up to 12 months to satisfy withdrawal notices and where investors would also be able to only withdraw in accordance with a withdrawal offer where the fund was illiquid. Disclaimers were also not prominent; and
2. the use of the phrase ‘capital stable’ to describe the fund, which represented that capital invested would not decrease in value or be lost in circumstances where a person who invested in the fund could substantially lose capital invested and disclaimers were not prominent.

The Court accepted that the conduct was misleading or deceptive. In assessing the appropriateness of the proposed penalty, Judge Jagot made a number of observations, including that:

1. where a representation is made on a website, a separate representation and therefore a separate contravention arises each time a person accesses the relevant page. Similarly, a separate contravention arises each time a person reads a newspaper or magazine advertisement; and
2. it was a relevant factor to Her Honour’s assessment of the appropriate penalty that the responsible entity had previously altered its marketing in response to ASIC’s correspondence, and that ASIC had indicated it had no further comments. Her Honour noted that, while ASIC has no responsibility to advise corporations and expressions of opinion by ASIC do not operate as defences to contraventions, such correspondence was relevant to the responsible entity’s overall culpability, particularly the deliberateness of the contraventions and its attitude toward legal compliance.

Commenting on the decision, ASIC noted that it is concerned about such misconduct in promotional material, especially when investors are seeking yield in a low interest rate economy.

Litigation funding regulations registered

On 25 November, the Corporations Amendment (Litigation Funding) Regulations 2021 was registered.

According to the Explanatory Statement, the purpose of the regulations is generally to:

1. introduce an additional condition on a litigation funding entity’s AFSL that prevents a legal representative of the plaintiff in a funded action from having or obtaining a material financial interest in the litigation funder for that action; and
2. make technical amendments to the Corporations Regulations to ensure consistency following the commencement of the Corporations Amendment (Improving Outcomes for Litigation Funding Participants) Bill 2021 (which is currently before Parliament, and establishes a new type of scheme known as the ‘class action litigation funding scheme’).

The regulations arose out of consultation undertaken from September to October this year. For more information on the consultation, see our earlier Issue 59.

APRA publishes MySuper and Choice Heatmaps

On 16 December, APRA published its first Choice Heatmap, alongside the annual MySuper Heatmap.

APRA states the Choice Heatmap captures products and options in which members have made an active decision to invest, represents the first time the performance of this segment of the market has been exposed to such public scrutiny, while the MySuper Heatmap has been expanded to include each product’s assessment result received under the new Your Future, Your Super Performance Test.

The heatmaps are available on APRA’s website.

ASIC publishes findings and recommendations from its review into super trustees that offer income protection insurance

On 10 December, ASIC announced that a 2021 ASIC review has highlighted that trustees need to examine outcomes for their members and proactively consider whether they are delivering value for money through their insurance in superannuation offering. In its review, ASIC examined the practices of the trustees of five large funds that provided default income protection insurance on an opt-out basis to members.

According to ASIC, to address the issues identified in the review, trustees should:

1. obtain and analyse data, including from their insurer, to assess how offsets affect member outcomes, including whether some groups of members are receiving low or no value;
2. improve the extent and quality of disclosures to members relating to income protection offsets, especially when a member’s income protection insurance will pay a reduced benefit; and
3. clearly explain to their members how ‘offset’ clauses work, so that members can make informed decisions about their insurance.

APRA consults on proposed amendments to SPS 310

On 10 December, APRA published a letter to RSE licensees and RSE auditors, consulting on proposed amendments to APRA Prudential Standard SPS 310 Audited and Related Matters (SPS 310). According to the letter, the proposed changes are intended to align with changes to APRA’s reporting standards for superannuation.

Consultation closes on 11 March 2022.

APRA publishes FAQs in relation to Superannuation Data Transformation project

On 3 December, APRA announced the publication of six additional frequency asked questions (FAQ) in relation to reporting standards and the reporting of historical data for Phase 1 of the Superannuation Data Transformation project. The FAQs are available on APRA’s website.

APRA consults on proposed updates in anticipation of AASB 17

On 13 December, APRA published proposed updates to the capital and reporting frameworks for insurance in anticipation of the introduction of Australian Accounting Standards Board 17 Insurance Contracts (AASB 17) on 1 January 2023. The proposal materials are available online.

According to APRA, the current life and general insurance capital framework and reporting framework are based on current accounting standards. The proposed updates are prepared in respect of AASB 17, as well as update other aspects of the framework.

APRA states that the proposals are also relevant for private health insurers, as APRA intends to align the private health insurance capital framework to the life and general insurance capital framework.

Consultation closes on 31 March 2022.

APRA commences further consultation on private health insurer capital framework

On 13 December, APRA announced that it will undertake further consultation on measures designed to strengthen the capital framework for private health insurance (PHI). According to APRA, the proposed new framework is based on the life and general insurance capital framework, but adapted to suit the different features of PHI.

The consultation materials can be found here, and include:

1. draft capital standards and reporting standards;
2. quantitative impact study workbooks; and
3. a response paper setting out APRA’s response to stakeholder feedback provided to date.

Consultation closes on 31 March 2022.

Government publishes review into government terrorism reinsurance scheme

On 10 December, the Assistant Treasurer, Michael Sukkar, announced the publication of the final report into the Governments review of the Terrorism Insurance Act 2003 (Cth). According to the final report, the review recommends that the terrorism insurance scheme (which is administered by the Australian Reinsurance Pool Corporation (ARPC)) remain in place.

According to the final report, the review also found that:

1. there is yet to be a clear and evident market failure in relation to physical property damage from cyber terrorism requiring government provision of reinsurance through ARPC; and
2. the current arrangements for ARPC governance remain appropriate for its existing functions.

The final report is available on Treasury’s website here.

Government consults on mandatory reinsurance pool for cyclones and related flood damage

On 3 December, the Assistant Treasurer, Michael Sukkar, announced the commencement of consultation on draft legislation on the reinsurance pool for cyclones and related flood damage. The exposure draft legislation, regulations, explanatory material as well as a fact sheet are available from Treasury.

According to the factsheet, among other matters:

1. the reinsurance pool for cyclones and related flood damage will be backed by a $10 billion Government guarantee and cover household, residential strata and small business property insurance policies;
2. the Australian Reinsurance Pool Corporation will operate the pool from 1 July 2022;
3. general insurers with eligible policies will be required to participate, and the pool will be funded by charging reinsurance premiums to insurers; and
4. from 1 July 2022 to 30 June 2025, the pool will cover all of the cost of eligible cyclone and related flood damage claims above the policyholder’s excess, and from 1 July 2025, the pool will operate on a risk-sharing arrangement with insurers.

Consultation closes on 17 December.

ASIC announces findings from insurance claims handling review project

On 1 December, ASIC announced it has completed a project reviewing insurance claims handling outcomes for consumers affected by the 2019-20 ‘Black Summer’ bushfires. ASIC states that it identified a number of good practices, which it encourages all insurers to adopt more broadly.

ASIC also states that, with reforms to claims handling commencing from 1 January 2022, it will continue to work with industry and will be monitoring insurers to ensure claims are handled in a timely, accurate and transparent manner.

Government releases draft Terms of Reference for quality of advice review

On 16 December, the Government released for feedback and stakeholder views draft Terms of Reference for the ‘Advice Review’.

The Review of the quality of financial advice Draft Terms of Reference states that the purpose of the review is consider to how the regulatory framework could better enable the provision of high-quality, accessible and affordable financial advice for retail investors, consistent with recommendations 2.3, 2.5 and 2.6 of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

The Minister for Superannuation, Financial Services and the Digital Economy, Jane Hume, stated that the Quality of Advice Review aims to identify opportunities to streamline and simplify regulatory compliance obligations to reduce cost and remove duplication, recognising that costs of compliance by businesses are ultimately borne by consumers.

Consultation closes on 4 February 2022.

ASIC publishes financial advisor hub on its website

On 7 December, ASIC announced that it has launched a Financial Advice Hub for advice licensees and advisors. According to ASIC, the hub is a one-stop access point for pertinent guidance and information impacting financial advice licensees, advisors, and relevant stakeholders.

‘Better Advice’ educational and training standards registered

On 6 December, the Corporations (Relevant Providers—Education and Training Standards) Determination 2021 (Determination) was registered.

According to the Explanatory Statement, the purpose of the Determination is to support amendments made in the Financial Sector Reform (Hayne Royal Commission Response—Better Advice) Act 2021 (Cth) by putting in place principles to guide the administration of the financial advisor exam by ASIC and setting education and training standards for the provision of tax (financial) advice services by relevant providers.

The Determination commences on 1 January 2022 and aligns with the commencement of the Act.

ASIC publishes limited advice guidance and example for advisors

On 1 December, ASIC published an information sheet and example Statement of Advice (SoA) to assist financial advisors and advice licensees comply with their obligations when providing limited personal advice to retail clients.

ASIC states that, in developing the SoA example, it consulted with FASEA who confirmed that the example is consistent with advisors’ obligations under the FASEA Financial Planners and Advisers Code of Ethics.

ASX consults on changes to cancellation ranges and cancellation process for ASX Trade

On 6 December, the ASX published a consultation paper setting out its proposals for a number of potential changes to the cancellation ranges and cancellation process that the ASX is currently reviewing for the management of the ASX Trade market.

Consultation closes on 31 January 2022.

ASIC market integrity determination registered

On 6 December, the ASIC Market Integrity Rules (Securities Markets) Determination 2021/991 and ASIC Market Integrity Rules (Securities Markets) Repeal Instrument 2021/992 were registered.

According to the Explanatory Statement, the purpose of the instruments is to determine the Tier 1 Equity Market Products and the Tier 2 Equity Market Products for the purposes of paragraph 6.2.1(1)(c) of the ASIC Market Integrity Rules (Securities Markets) 2017, and to repeal the current determination ASIC Market Integrity Rules (Securities Markets) Determination 2021/772 (which is to be superseded).

The Explanatory Statement confirms that the Determination and Repeal Instrument maintain existing policy settings under the current determination.

ASIC publishes cyber resilience report on financial markets firms

On 6 December, ASIC published a report on the cyber resilience of financial markets firms. According to ASIC Report 716 Cyber resilience of firms in Australia’s financial markets: 2020–21, the overall cyber resilience of firms operating in Australia’s financial markets has remained steady, however, it has fallen short of targeted improvement by respondents for the period.

ASIC states that all firms should consider the application of the good practices identified in the report for managing supply chain risk management, and that failure to invest in supply chain risk management could lead to significant consumer harm that might warrant ASIC investigation and action.

Additions and modifications made to AML/CTF Rules

On 13 December, the Anti-Money Laundering and Counter-Terrorism Financing Rules Amendment Instrument 2021 (No. 3) was registered.

According to the Explanatory Statement, the purpose of the amending regulations is to make the following modifications to the Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No. 1) (AML/CTF Rules):

1. the insertion of Chapter 79, which sets out special circumstances in which a reporting entity may carry out the applicable customer identification procedure in respect of a customer after commencing to provide the designated service of opening an account;
2. the insertion of Chapter 80, which excludes certain types of products that are unintentionally caught by the definition of a ‘stored value card’ under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (AML/CTF Act); and
3. an amendment of Chapter 48, which expands the current exemption from the AML/CTF Act relating to salary packaging services to include payroll and superannuation clearance services.

The amending regulations commenced on 14 December.

AUSTRAC publishes a suite of AML/CTF updates and reminders

On 13 December, AUSTRAC published:

1. three top tips arising out of AUSTRAC’s insights from 2020 compliance reporting;
2. new resources for reporting entities to improve their AML/CTF systems and processes;
3. a reminder to reporting entities to provide feedback on updated guidance in relation to reporting threshold transaction reports by 22 December 2021;
4. an update in relation to AUSTRAC’s System Transformation Program;
5. information about AUSTRAC’s induction programs for new reporting entities; and
6. the second part to an explainer on AUSTRAC’s regulatory and intelligence functions.

AUSTRAC publishes financial crime guide in relation to disaster assistance payments fraud

On 9 December, AUSTRAC announced the publication of a new financial crime guide designed to help financial services businesses detect and report suspicious transactions indicative of fraud and misuse of emergency and disaster payments administered through Services Australia. The financial crime guide is available on AUSTRAC's website. 

Litigation funding schemes exempt from AML/CTF

On 30 November, the Anti-Money Laundering and Counter-Terrorism Financing Rules Amendment Instrument 2021 (No. 2) was registered.

According to the Explanatory Statement, the purpose of the amending regulations is to amend the Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No. 1) to exempt the issuing of an interest in a litigation funding scheme from the operation of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) when the person issuing the interest holds an AFSL and the litigation funding scheme is either registered with ASIC or exempt from the registration requirement.

The amending regulations commenced on 1 December.

ASIC consults further on product intervention order for short term credit and continuing credit contracts

On 9 December, ASIC published a consultation paper seeking feedback on a proposed use of its product intervention powers to address significant consumer detriment in the short-term credit and continuing credit contracts industries. The consultation materials comprise:

1. ASIC Consultation Paper 355 Product Intervention Orders – Short Term Credit and Continuing Credit Contracts (CP 355);
2. Attachment 1 to CP 355, being the draft ASIC Corporation (Product Intervention – Short Term Credit) Instrument 2022/XXX; and
3. Attachment 2 to CP 355, being the draft ASIC Corporation (Product Intervention – Continuing Credit Contracts) Instrument 2022/XXX.

The new paper continues consultation conducted by ASIC in 2020 in relation to continuing credit contracts (for more information, see our earlier Issue 47).

Consultation closes on 21 January 2022.

ASIC consults on ASIC relief for simple arrangements with consumers in hardship

On 8 December, ASIC commenced consultation on whether to extend the written notice exemption under ASIC Class Order [CO 14/41] for credit providers and lessors who enter into simple arrangements with consumers in hardship.

According to ASIC, [CO 14/41] relieves credit providers and lessors from the obligation to provide written notice to consumers about hardship contract variations of 90 days or less (known as ‘simple arrangements’), and is due to expire on 1 March 2022. In ASIC Consultation Paper 354 ASIC relief for simple arrangements following a hardship notice: [CO 14/41], ASIC invites stakeholders to provide submissions on whether the class order continues to form a useful part of the regulatory framework.

Consultation ends on 1 February 2022.

Government response to the National Housing Finance and Investment Corporation Act 2018 Review

On 16 December, the Government released its response to the Statutory Review of the Operation of the National Housing Finance and Investment Corporation Act 2018 released on 28 October 2021.

Treasury states the Government supports 21 of the Review recommendations in full or in principle.

The response can be found on Treasury’s website.

APRA issues consultation reminders to ADIs

On 10 December, APRA reminded authorised deposit-taking institutions (ADIs) that they will be required to meet the requirements of APRA Prudential Standard APS 220 Credit Risk Management (APS 220) from 1 January 2022. APRA also announced that the proposed changes in relation to which APRA consulted in December 2020 will not be progressing at this stage (for more information on the consultation, see our earlier Issue 48).

APRA reminded entities that it is currently consulting on a proposed new attachment to APS 220 An information paper on this was released on 11 November. The proposal relates to APRA’s proposed macroprudential measures for ADIs, and is available on APRA’s website.

APRA publishes FAQs in relation to liquidity treatment of certain types of deposits

On 9 December, APRA published a new set of frequently asked questions (FAQ) in relation to APRA Prudential Standard APS 210 Liquidity and APRA Reporting Standard ARS 210.0 Liquidity. According to APRA, the updates clarify the liquidity treatment of certain types of deposits.

You can read the liquidity FAQs online.

Report on wholesale CBDC research project published

On 8 December, the Reserve Bank of Australia (RBA), Commonwealth Bank of Australia, National Australia Bank, Perpetual and ConsenSys, with additional input from King & Wood Mallesons, published a report on the successful conclusion of Project Atom, a collaborative research project and proof-of-concept that examined the potential use and implications of a wholesale form of central bank digital currency (CBDC) using distributed ledger technology (DLT).

According to the report, among other matters:

1. there are a range of potential benefits in providing non-bank wholesale market participants with access to a CBDC issued by the RBA for settling transactions and as a store of value – however, broader access beyond commercial banks also raises a number of policy and legal issues;
2. the proof-of-concept demonstrated that the digitisation of syndicated loans on a DLT platform could provide significant efficiency gains and reduce operational risk; and
3. the proof-of-concept also demonstrated that an enterprise-grade DLT platform could address many of the possible requirements on a wholesale CBDC and tokenised assets platform.

APRA publishes FAQs in relation to measurement of capital

On 7 December, APRA published frequently asked questions (FAQ) on the measurement of capital for the ADI, general insurance and life insurance industries.

According to APRA, the FAQs will be reviewed and updated when the Australian Accounting Standards Board 17 Insurance Contracts comes into effect and various updates to the life and general insurance capital framework updates are finalised. You can read the measurement of capital FAQs on APRA’s website.

APRA publishes new bank capital framework documents

On 29 November, APRA announced the finalisation of its new bank capital framework designed to strengthen financial system resilience and to ensure Australia’s compliance with the Basel III framework. The framework was developed over four years of consultation.

As part of the announcement, APRA published:

1. APRA Information Paper An Unquestionably Strong Framework for Bank Capital;
2. the latest non-confidential submissions and its response; and
3. updated prudential standards in relation to capital adequacy and credit risk capital,

which are available on APRA’s website: ‘Revisions to the capital framework for authorised deposit-taking institutions’.

APRA also published draft prudential guidance for consultation.

Consultation closes on 11 March 2022.

APRA releases annual friendly society bulletin

On 16 December, APRA released the annual friendly society bulletin.

APRA states the annual friendly society bulletin provides an aggregated summary of the friendly society industry for a 12-month reference period, and also contains a range of data items for each individual entity, including profit and loss, balance sheet and solvency information.

APRA and ASIC publish annual update on joint engagement

On 15 December, APRA and ASIC published their annual update on engagement between the two regulators.

Examples of collaboration between the agencies include:

1. collaboration on loan repayment deferrals and borrower hardship, and a range of issues concerning the insurance sector (including in relation to business interruption insurance and individual disability income insurance);
2. participation in a cross-agency working group with the Treasury and the Australian Financial Complaints Authority to engage with industry on business interruption insurance test cases being heard in the Federal Court;
3. co-chairing of a Trans-Tasman Supervisory College during 2021 that brought together six Australian and New Zealand regulators to consider issues related to consumer protection, prudential regulation and conduct regulation (among others); and
4. engagement with jointly regulated financial service providers on the issues of cyber readiness and operational resilience. Also, as part of the Council of Financial Regulators, APRA and ASIC have been developing a protocol to deal with the management of a cyber incident at a financial service provider.

ASIC announces support for ISSB and climate-related disclosure guidance

On 14 December, ASIC announced its support for the establishment of the International Sustainability Standards Board (ISSB). The ISSB was announced at the 2021 United Nations Climate Change Conference and its purpose is to develop high-quality global baseline climate and sustainability disclosure standards to meet investors’ information needs.

ASIC also reminded listed companies that they are encouraged to use Taskforce on Climate-related Financial Disclosures recommendations as the primary framework for voluntary climate change-related disclosures.

Government releases response to inquiry into future directions for CDR

On 14 December, the Treasurer, Josh Frydenberg, and the Minister for Superannuation, Financial Services and the Digital Economy, Jane Hume, jointly announced that the Government is expanding the Consumer Data Right (CDR) to enable consumers and businesses to instruct third parties to initiate actions on behalf and with their consent.

The Government response arises out of the inquiry into future directions for the CDR (for more information on the final report of this inquiry, see our earlier Issue 49). The full response is available on Treasury’s website, here.

According to the Treasury, the Government’s response also commits to other recommended reforms that will grow the CDR ecosystem and foster greater international engagement.

Amendments to critical infrastructure assets under foreign investment review framework

On 9 December, the Foreign Investment Review Board (FIRB) announced that the Security Legislation Amendment (Critical Infrastructure) Act 2021 (Cth) (Act) was registered on 7 December.

According to FIRB, the Act expands the number of critical infrastructure assets under the Security of Critical Infrastructure Act 2018 (Cth), with flow-on implications for notification requirements under the Foreign Acquisitions and Takeovers Act 1975 (Cth).

On 14 December, FIRB announced that Treasury has updated the National Security Guidance Note to reflect the expanded scope of the mandatory notification requirements under the foreign investment framework flowing from the Act, Security of Critical Infrastructure (Definitions) Rules 2021 and the recent launch of the Blueprint and Action Plan for Critical Technologies.

RBA publishes 2020/21 assessment of overseas clearing and settlement facility

On 3 December, the Reserve Bank of Australia (RBA) published its 2020/21 assessment of LCH Limited’s SwapClear service (a UK-based, systematically important central counterparty in Australia which clears around 90% of the cleared AUD over-the-counter interest rate derivatives market).

According to the assessment, LCH Limited is licensed under section 824B of the Corporations Act to provide an overseas-based clearing and settlement facility. According to the RBA, LCH Limited has conducted its affairs in a way that promotes overall stability in the Australian financial system.

APRA consults on prudential standards to strengthen crisis preparedness

On 2 December, APRA released for consultation a discussion paper and two draft prudential standards to strengthen crisis preparedness across banks, insurers and superannuation trustees.

Draft Prudential Standard CPS 190 Financial Contingency Planning introduces requirements for all APRA-regulated entities to develop contingency plans to respond to financial stress by either recovering their financial resilience or exiting APRA-regulated activities in an orderly manner.

Draft Prudential Standard CPS 900 Resolution Planning requires large or complex entities, or those that provide critical functions to the economy, to be prepared for resolution to minimise the impact on the community and the financial system.

The discussion paper and draft prudential standards can be found on the ‘Strengthening crisis preparedness’ page of APRA’s website.

Written submissions are requested by 29 April 2022.

ASIC consults on proposals in relation to reporting audit quality reviews to entities

On 2 December, ASIC commenced consultation on proposals to change its approach to the communication of audit quality findings identified from ASIC’s review of audit files to the directors of the entities audited.

According to ASIC Consultation Paper 352 Communicating audit findings to directors, audit committees or senior managers (CP 352), ASIC may communicate specific financial reporting and audit quality findings identified from reviews of audit files directly to directors, audit committees or senior managers of a company, responsible entity or disclosing entity to help the entity to properly manage its affairs.

According to CP 352, ASIC’s proposal is to communicate audit quality findings from its reviews of audit files to directors of the entities concerned on a routine basis rather than an exception basis. ASIC also published a draft updated ASIC Regulatory Guide 260 Communicating findings from audit files to directors, audit committees or senior managers.

Consultation closes on 11 February 2022.

ALRC publishes first interim report from inquiry into simplifying financial services laws

On 30 November, the Australian Law Reform Commission (ALRC) published the first of three interim reports as part of its inquiry into the potential simplification of laws that regulate financial services in Australia. For more information on the inquiry, see our earlier Issue 45.

According to the ALRC, the laws regulating corporations and financial services are uniquely and unnecessarily complex. The ALRC states that the report includes a draft model for how the law could be designed to make it easier to find relevant requirements, and exceptions to those requirements.

The ALRC is seeking written submissions on proposals and questions in the interim report.

Consultation closes on 25 February 2022.

ASIC extends financial reporting deadlines by one month

On 30 November, ASIC announced that it will extend the deadline for unlisted entities to lodge financial reports by one month for balance dates from 24 December 2021 to 7 January 2022 (inclusive), as a result of challenges presented by COVID-19 conditions. The operative instrument, ASIC Corporations (Amendment) Instrument 2021/976, was registered on 2 December.

This includes deadlines under Chapter 7 of the Corporations Act to lodge profit and loss and balance sheets (and other associated information) for unlisted AFS licensees. According to the Explanatory Statement, an extension of the deadline for unlisted registered schemes to lodge compliance plan audit reports will automatically occur as a result of the extension for registered schemes.

Financial Regulator Assessment Authority’s assessment of ASIC’s effectiveness and capability commenced

On 29 November, the Treasurer, Josh Frydenberg, announced the publication of the Financial Regulator Assessment Authority’s (FRAA) first review of the effectiveness and capability of ASIC.

The scope of the assessment was published by FRAA on its website.

Consultation closes on 28 January 2022.

CDR privacy impact assessment and government agencies’ response published

On 29 November, the Treasury made available on its website:

1. the fourth update to the Privacy Impact Assessment (PIA) for the Consumer Data Right (CDR); and
2. the response by the Treasury, ACC and the Office of the Australian Information Commission to recommendations made by the PIA.

APRA finalises prudential guidance on managing the financial risks of climate change

On 26 November, APRA released its final prudential practice guide on climate change financial risk.

The guide covers APRA’s view of sound practice in areas such as governance, risk management, scenario analysis and disclosure of climate-related financial risks, and is designed to be flexible in allowing each institution to adopt an approach that is appropriate for its size, customer base and business strategy.